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Kono Diamond Credit Feasibility Study

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Kono Diamond Credit Feasibility Study The Feasibility Of Establishing A Formal Credit Delivery Mechanism For Small-Scale Diamond Miners In Kono District, Sierra Leone May 2003 Reese Moyers Prepared by Management Systems International Under USAID Cooperative Agreement No. 636-A-00-03-00003 Sierra Leone Washington, DC 37 Circular Road 600 Water St., SW Freetow n - Sierra Leone Washington, D.C. Cell: +232 76-665-797 (202) 484-7170 e-mail: [email protected] E-mail: [email protected] www.peacediamonds.org www.msiworldwide.com TABLE OF CONTENTS Executive Summary ..........................................................................................................................ii 1. Background..............................................................................................................................1 1.1 Kono Peace Diamond Alliance ..........................................................................................1 1.2 MSI’s Program Strategy....................................................................................................1 2. Small-Scale and Artisanal Mining Credit Study.......................................................................2 2.2 Scope of Work .................................................................................................................2 2.3 Methodology ....................................................................................................................3 3. The Diamond Mining Industry.................................................................................................3 3.1 Overview of Small-Scale and Artisanal Mining ..................................................................4 4. Sierra Leone .............................................................................................................................4 4.1 Kono District....................................................................................................................4 4.2 Mining Licenses...............................................................................................................5 4.2.1 Chiefdoms and the Ministry of Mineral Resources (MMR)......................................5 4.2.2 Number of Kono Licenses.....................................................................................5 4.2.3 Employment.........................................................................................................6 5. Problem Definition...................................................................................................................6 5.1 Debt Bondage...................................................................................................................6 5.2 Providing Finance in Post-Conflict Situations .....................................................................7 6. Findings ...................................................................................................................................8 6.1 Current informal credit arrangements.................................................................................8 6.2 Economy of the current arrangements .............................................................................. 10 6.2.1 The “Legal” Sub-System..................................................................................... 10 6.2.2 The “Illegal” Sub-System.................................................................................... 11 6.3 Effectiveness of the current arrangements......................................................................... 12 6.4 Key parameters to be addressed....................................................................................... 13 6.5 Improvement to the current scheme ................................................................................. 13 6.6 Alternative options ......................................................................................................... 13 7. A Sector Development Approach ...........................................................................................14 8. Conclusions and Recommendations .......................................................................................17 8.1 Conclusions ................................................................................................................... 17 8.2 Recommendations .......................................................................................................... 17 Annex A: Scope of Work: Credit to Miners Program Feasibility Study.........................................20 Annex B: List of Documents Reviewed..........................................................................................25 Annex C: Assignment Work Plan ..................................................................................................27 Annex D: List of Persons Interviewed............................................................................................29 i EXECUTIVE SUMMARY 1. Background In partnership with the US Agency for International Development (USAID) Management Systems International (MSI) has been working since 1999 with the Government of Sierra Leone (GOSL), local civil society, traditional leaders and community member, international NGOs and business, and the UK’s Department for International Development to work towards establishment of diamond regimes that promote peace and prosperity in Sierra Leone instead of fueling warfare. Part of this effort involves establishment of a Peace Diamond Alliance. At the broadest level, the purpose of the Alliance is to convert the diamond resource from a cause of war and desperation to a foundation for peace and prosperity. This will be accomplished by implementing a pilot project in the Kono District of Sierra Leone that will demonstrate that a formalized alluvial diamond industry can work. 2. Small-Scale and Artisanal Mining Credit Study Throughout Sierra Leone small-scale and artisanal diamond miners lack capital to invest in mining activities, and formal sector credit schemes are unavailable for such high-risk loans. As a consequence, most Miners enter into informal agreements with “Supporters” to finance their mining activities. The Ministry of Mineral Resources (MMR) has emphasized the importance of establishing a formal credit scheme to enable Miners to access the credit they need, conduct their mining, and then be free to sell their “winnings” (rough diamonds) to the highest bidder. 2.1 Scope of Work It is clear that the credit issue is central to improving diamond management in Sierra Leone. Consequently, a study of the feasibility of establishing a formal credit mechanism for small-scale diamond miners in Kono became a high priority. The Scope of Work assigned to Reese Moyers is presented in Annex A. Its main objectives were to: · Describe the current informal credit arrangements; · Describe the economy of the current arrangements, including the normal credit cycle, lending procedures and credit terms, estimated individual and group credit demand and the general risks associated with current credit lending arrangements; · Consider whether current arrangements are optimal. It may well be that current arrangements are more efficient than is generally understood; · Identify key parameters to be addressed in improving credit availability; · Suggest ways the current scheme could be improved (if possible); and · Suggest alternative options that could provide credit effectively while maximizing income to the Miners. 2.2 Methodology MSI headquarters representatives provided orientation to the assignment prior to departure. After those discussions, the Consultant began with a review of documents. Initially, the Consultant began his work in Freetown, and based on the document review and discussions with MSI field personnel, he drafted a Work Plan for the assignment. Fieldwork was based in Koidu, Kono District. While in Kono, the Consultant met with representatives of Chiefdoms, Miners from the Alluvial Diamond and Gold Miners Association of Kono District (ADAGMAK), the Ministry of Mineral Resources office, Supporters and others. The consultant also met with the Credit Working Group to assist in their preparations for the National Diamond Policy ii Roundtable, jointly supported by USAID and DfID. The Consultant interviewed that group to learn its concerns and provided feedback to them concerning the findings of the assignment. 3. The Diamond Mining Industry The total world production of diamonds in 2001 was estimated at US$7.9 billion and was mined in approximately 26 countries. Small-scale and artisanal mining is a sometimes mechanized, but still labor- intensive activity. Current estimates are that between 8 and 10 million people – more than 20 percent of those active in the industry as a whole - directly participate in the industry. 4. Sierra Leone In October 2000 Sierra Leone introduced a Certificate of Origin scheme for the export of diamonds, as part of the Kimberly Process. Official diamond exports were slightly less than US$1.5 million in 1999, but rose to US$42 million in 2002. This seemingly represents an impressive turnaround, but it is widely believed that considerable smuggling persists. 4.1 Kono District Diamonds were first discovered in Sierra Leone in January 1930, during a routine geological field survey of the Kono District. Since the end of the war it appears that, aside from petty trading and some subsistence agriculture, the District is almost completely dependent on “legal” and “illegal” small-scale and artisanal diamond mining
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